Saturday, February 9, 2008

Surviving the Current Recession

Surviving the Current Recession

"America needs you, Harry Truman"


Harry Truman said that a recession is when your neighbor loses his (or her) job. A depression is when you lose your job.

A 21st century version of Truman's theory is: A recession is when your neighbor is foreclosed on. A depression is when you are foreclosed on.

Managing debt and wealth are how we now measure the economy. Unemployment is low. There are plenty of minimum wage jobs but minimum wage does not net enough to make a sub prime house payment.

We are in a recession. The economy has been lousy for months.

Some lame brain economists, like Federal Reserve Board Chairman Ben Bernanke, try to convince us otherwise. They point to obscure economic indexes and try to cheer us up.

You can't be in good cheer when they are hauling off the neighbor's furniture.

Politicians have a tough balancing act. They need to present a positive spin.

Consumer confidence drives the economy. If people get into a negative mindset, the economy spirals further down.

Franklin Delano Roosevelt turned the tide on the great depression by saying, "the only thing we have to fear is fear itself." He gave people hope.

FDR offer more than a great slogan. He spent the first 100 days of his administration putting spending programs in place.

Things got better. Those who lived through that era learned the value of saving over spending.

A lesson this generation forgot.

Our recession was caused by out of control borrowing. People bought things they couldn't afford. They ran up the mortgages, car loans and credit cards until they were completely maxed out. Life has been a party and like any out of control party, there is a hangover the next day.

When someone is recovering from a hangover, I give them Gatorade. I survived pneumonia on Gatorade. I swear by its magical powers.

My economic Gatorade comes in three parts.

1. Don't panic. FDR was right when he said the only thing we have to fear is fear itself. Lately, I've have tons of people call in panic. They tell me they want to dump their stock, sell their house or become a survivalist and stockpile canned food and guns.

I tell them to take a deep breath.

Panic is what causes a recession to become a depression. It is also stupid. The economy works like seasons of the year. If you hunker down in winter, spring will eventually be here.

2. If you do have money, make some financial moves. Great fortunes are made in the bad economic cycles. A recession is the perfect time to get rich.

There are real estate bargains and a lot to choose from. People are dumping stocks and bonds. If you do your homework, there are buying opportunities.

If you have money hidden under a mattress, take it out and start investing.

If you have manageable debt but a good credit rating, now is the time to refinance. If you have a variable mortgage, you need to get a fixed one. Today.

People can call their credit card lenders and get better rates. Try it. All they can tell you is no.

I would prefer you tear up your credit cards completely but if you hang on to them, get the best deal you can.

3. You need a budget and an emergency fund. A budget gives you an accurate measure of where you are. Like starting a diet, you need monitor progress. A budget is the economics equivalent of getting on the scale.

People who budget and plan, have money. People who write down what they are eating lose weight. It's not magic. It is developing good habits.

If you are in debt, you need to figure out where you spent it and how to start paying it back.

A recession is the economy's reminder to have a savings plan. People with savings, diversified investments and no debt can survive any economy.

Even if they lose their job.

All goes back to living beneath your means, like Harry Truman did. It's fun to show the neighbors your new house and fancy car.

It is not fun to face them when those items get repossessed.

Don McNay is the author of Winners, Losers and What to Do When You Win The Lottery. You can write to him at or read his award winning column at